Mel Watt Testifies Before the Senate Committee on Banking, Housing and Urban Affairs

May 12, 2017

Copyright: Andrea Izzotti

Mel Watt,
Director of the Federal Housing Finance Agency (FHFA) testified before the Senate
Committee on Banking, Housing and Urban Affairson Thursday, May 12th. As part of his written testimony
he highlighted the positive changes that FHFA has made over recent years and argued
that as Congress considers reforms, these changes should not be discarded.
Specifically, he advised that:

“These conservatorships are not sustainable
and they need to end as soon as Congress can chart the way forward on housing
finance reform. However, it is important for all of us to recognize that
the conservatorships have led to numerous reforms of the Enterprises and their
operations, practices, and protocols that have been extremely beneficial to the
housing finance markets and have reduced exposure and risks to taxpayers.

“It is critically important for the members
of this Committee to be well aware of these reforms because you will have the
responsibility to ensure that the reforms are not disregarded or discarded
because of assertions some will make that the Enterprises now are the same or
mirror images of the Enterprises that FHFA placed into conservatorship almost
nine years ago. I can assure you that such assertions would be unfounded.”

While much of Watt’s testimony focused on single family
housing, his written testimony emphasized multifamily improvements. He informed
the committee that:

“The Enterprises' multifamily programs, which
performed well during the crisis while other parts of the housing market
struggled, continue to share a substantial amount of credit risk with private
investors and continue to provide needed liquidity for the multifamily market
with major emphasis on affordable rental housing and underserved markets.”

During questioning from Senators,
which at times featured strong opinions from both sides of the aisle, Senator Corker
(R-TN) argued that a draw on Treasury is a nonevent, going so far as to tell
Watt to go draw $10 billion this afternoon to show nothing would change Lastly,
he called Watt’s concerns about the optics of a draw a “baseless argument.”
Predictably, Senator Warren (D-MA) attacked him on principle reduction.

The only line of questioning
on the multifamily industry came from Senator Schatz (D-HI) who asked if the
GSEs could do more in the affordable space, how to encourage more building and
if there were any statutory impediments to doing more to support affordable
apartment. Watt answered that there was not, but did take the time to discuss
the direction they have given to the GSE via the production cap and the cap
exclusion of affordable products and how successful that has been.

During the discussion, Watt
reiterated that it is up to Congress to move forward on Housing reform and that
it is his job to execute on the statutory mandates he has been given. These statutory mandates obligate FHFA to:

Conserve and preserve
the assets of the Enterprises while they are in conservatorship;

Ensure that the
Enterprises provided meaningful assistance to the millions of borrowers who
struggled to save their homes in the midst of the economic and housing crisis,
as required in the Emergency Economic Stabilization Act; and

Oversee the prudential
operations of the Enterprises and ensure that they continue to carry out their
on-going statutory missions in a safe and sound manner; in a manner that
fosters liquid, efficient, competitive, and resilient national housing finance
markets; and in a manner that is consistent with the public interest.

Finally, Watt did note that
he may be open to modifying the Senior Preferred Stock Purchase agreements to
allow the GSE to build capital. He told the panel that he has the authority to
make that modification in consultation with the Treasury and does not need the
approval of Congress.